Date of Award

2024

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Khemraj, Tarron

Area of Concentration

Quantitative Economics

Abstract

This research paper introduces the topic of Central Bank Digital Currencies (CBDCs) and its relationship to other key macroeconomic variables. It explores the literature surrounding the nature of CBDCs, their purpose, models, and their global development so far. We then delve into econometric analysis of CBDCs and their spillover effect on the stock and bond market, as well as their relationship with unemployment rate. The research found that CBDCs have a close relationship with bitcoin, where bitcoin can be used to predict Central Bank Digital Currency Attention index (CBDCAI) and Central Bank Digital Currency Uncertainty Index (CBDCUI). The research also discovered that CBDCUI shares a relationship with ten-year and three-month U.S. bond yield, but that possible effects may take longer to realize than with S&P 500, bitcoin, and unemployment rate. The implication of the study CBDCs are not immune to typical business cycle occurrences – therefore raising the question of whether this new class of currency is much ado about nothing. Moreover, CBDCs are less likely to be affected by private crypto currencies than the real economic forces such as unemployment.

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